Pay into Brass or restart payments into old pension?

[Iamanoob]

Just started with Scotrail and have no info as yet on pension contributions and won't really know until September for a full wage slip, but I have an old work pension that I last paid into 17 years ago that has about £50k in it. If everything goes to plan I will have 17 years worth of the rail pension (not a lot but it's something), now I was always going to pay into BRASS anyway but was wondering if it would be better putting money into the old pension. Now the old pension made about £2k from Jan-June this year and is in a high risk fund if I remember correctly.

Cheers guys

 

[standish1]

Recommend you receive professional advice. Your Union may be able to help you over this matter.

 

[RoyalE3091]

Worth joining the Railway pensions group on Facebook and asking on there or calling RPS if you need anymore assistance.

 

[RJ]

I conferred with a friend who is an actuary and after running the sums, he concluded it wasn’t a great value proposition. Would agree with seeking professional advice from someone who fully understands how these schemes work!

 

[lambo89]

What isn't a great proposition?

 

[John Bishop]

The default position would be to whack it into BRASS, your saving tax deduction immediately. If you put into other pension, you will be paying 21%+ tax on that sum!

 

[greatkingrat]

The default position would be to whack it into BRASS, your saving tax deduction immediately. If you put into other pension, you will be paying 21%+ tax on that sum!

Right answer, wrong reason! You get tax relief on payments into any pension, whether BRASS or a separate pension. The advantage comes when you retire. As BRASS is linked to your main railway pension, you can normally take the whole amount tax-free (unless it is very large). If you had the same amount in a private pension, you could only take 25% out tax-free and would pay tax on the remainder.

 

[John Bishop]

Right answer, wrong reason! You get tax relief on payments into any pension, whether BRASS or a separate pension. The advantage comes when you retire. As BRASS is linked to your main railway pension, you can normally take the whole amount tax-free (unless it is very large). If you had the same amount in a private pension, you could only take 25% out tax-free and would pay tax on the remainder.

Yes, of course. I was thinking that it was taxable because it wasn’t taken off at source, but you’re right.

 

[aleph_0]

I've found a previous thread, but there are a few unclear things:

BRASS

I'm just a few weeks into my railway career. I can see the benefits of being a member of the RPS, particularly as the TOC are making a significant contribution to my pension fund. That said, my last job with the Local Authority were contributing 3 x my contribution, so the TOC and not that...

www.railforums.co.uk

I'm not railway staff, but my understanding is that BRASS is just the branding of the railway pension scheme's AVC offer, which is a defined contribution-type scheme - i.e. you pay in £10,000, you choose which funds/managed fund package its invested in, and then at retirement you can take out whatever that has grown/shrunk to as either drawdown, or an annuity, etc.

So what it comes down to is whether a) There's any difference in fees, b) Any difference in choices of funds available, c) Any Salary Sacrifice (NIC saving) potential? d) Cash free lump sum impact. (a) and (b) should be clear.


To elaborate on my two new points:

Salary Sacrifice
There are two ways a pension scheme can work. Say you earn £2k a month, and you pay 5% into pension. Income Tax will only be calculated on the £1.9k, but National Insurance will be calculated on the £2k. Similarly, if you pay into a pension scheme not linked to your employer, you will get the Income Tax relief only.
With Salary Sacrifice, you agree for your "contractual right to salary" to be £1.9k a month, with an agreement for £100 pension contribution a month. With this, the National Insurance contributions will only be calculated on the £1.9k, saving you tax. It's meant to be for a long-term arrangement, and shouldn't apply to ad-hoc contributions.

If recurring BRASS AVCs can be done via. Salary Sacrifice, then there will be an additional saving vs. going externally because you'r saving Income Tax and NICs rather than just Tax. In the previous thread there was some confusion about if that's offered for the main scheme and/or AVCs, and it might vary by section?

Cash Free Lump Sum
Normally, you are allowed to take up to 25% of a pension value out as a tax-free lump sum.

The Railway scheme gives you 1/40th of final average pay for every year of service as a lump sum. But it also allows you to sacrifice some/all of this to increase your recurring payout - at a rate of an extra £1/year for every £12 off the lump sum. This is a very good deal for most people.

It sounds like (but do your own verification) you could take out 100% of your BRASS contributions as cash, assuming they'll by less than 25% value of the entire scheme (you won't be able to convert BRASS to annual income at the 1/12 rate, unless it was pre-2009). So an optimal plan would be to plan on converting the ordinary lump sum entitlement to normal income, and then use BRASS to have an actual lump sum.


Will emphasise it's definitely important to do your own research and potentially get advice, since there are lots of moving parts and it also depends on your wider plans/finances.

 

[Undiscovered]

Before putting anything extra into pensions, make sure you're paying off the maximum extra on your mortgage.

The difference it'll make for a minimal outlay is staggering. Especially if you're on a favourable rate now.

 

[Simon11]

Before putting anything extra into pensions, make sure you're paying off the maximum extra on your mortgage.

The difference it'll make for a minimal outlay is staggering. Especially if you're on a favourable rate now.

That is terrible advice in financial terms!

Providing you can afford your mortgage (in view of increase rates over the next few years), it is likely to be your cheapest form of borrowing and best to pay off the minimal amount following a long term plan to ensure it is paid off by the time you retire.

So once you have a comfortable saving pot for a rainy day emergency, then I would personally throw any spare cash at the pension, with a huge benefit of saving 40% tax (or 20% if you are a lower rate tax payer)! Can't really beat an instant 40% increase in return, following by hopefully a few decades of growth giving you a healthy/ early retirement living plus a lump sum if still needed to clear your mortgage.

Plus as a bonus, money in your pension (defined contribution) is also considered to sit outside your estate, which means that when you die your beneficiaries can access your retirement savings without having to pay inheritance tax.


Running two simple scenarios without considering compounding where you have £10 spare to save.

1. If you use the money to pay off the mortgage, assuming a whooping mortgage rate of 5% then 30 years savings of the £10 will have saved you £15. Thus 10+15 gives £25
2. If you use the money to put into your pension, assuming you are a higher rate tax payer and see an increase of 7% growth each year (normal average growth for pension investment over the last 10 years), the £10 will grow to £37

 

[E27007]

All I can say as an ex-BR employee, now retired and receiving a railway pension, very few pension schemes could match or exceed the RPS, and, RPS is one of very few defined benefits schemes still open to new members, many are money purchase schemes, considered by many to be inferior to a defined benefit scheme

 

[aleph_0]

Before putting anything extra into pensions, make sure you're paying off the maximum extra on your mortgage.

The difference it'll make for a minimal outlay is staggering. Especially if you're on a favourable rate now.

That is terrible advice in financial terms!

Simon11 makes a very good point, but also it really depends. Many with good fixed mortgage rates would do well to not overpay, and at the very least, just save extra cash at 5%+ interest.

Whether to do BRASS/AVCs is more a judgement call of how much cash you'll need in the short/medium term, you are locking up the money until retirement, there is some risk there. What type of taxpayer one is is also key, if someone is currently on lower rate, but knows they're likely to be a higher rate soon, then it's probably best to hold off BRASS/AVCs. On the other hand, have spare cash and close to retirement, getting money in to take advantage of the 25% tax-free pension cash rules is a no-brainer.

 

[E27007]

Simon11 makes a very good point, but also it really depends. Many with good fixed mortgage rates would do well to not overpay, and at the very least, just save extra cash at 5%+ interest.

Whether to do BRASS/AVCs is more a judgement call of how much cash you'll need in the short/medium term, you are locking up the money until retirement, there is some risk there. What type of taxpayer one is is also key, if someone is currently on lower rate, but knows they're likely to be a higher rate soon, then it's probably best to hold off BRASS/AVCs. On the other hand, have spare cash and close to retirement, getting money in to take advantage of the 25% tax-free pension cash rules is a no-brainer.

With Brass the employer makes a contribution which adds to the AVC fund, as for being locked up, you can change your Brass contribution up or down in the future, it is hard to catch up later if you delay for too long, RPS considers 60 years of age to be normal retirement age, you can take your pension at 60 without a penalty or discount.

 

[Train_manager]

That is terrible advice in financial terms!

Providing you can afford your mortgage (in view of increase rates over the next few years), it is likely to be your cheapest form of borrowing and best to pay off the minimal amount following a long term plan to ensure it is paid off by the time you retire.

So once you have a comfortable saving pot for a rainy day emergency, then I would personally throw any spare cash at the pension, with a huge benefit of saving 40% tax (or 20% if you are a lower rate tax payer)! Can't really beat an instant 40% increase in return, following by hopefully a few decades of growth giving you a healthy/ early retirement living plus a lump sum if still needed to clear your mortgage.

Plus as a bonus, money in your pension (defined contribution) is also considered to sit outside your estate, which means that when you die your beneficiaries can access your retirement savings without having to pay inheritance tax.


Running two simple scenarios without considering compounding where you have £10 spare to save.

1. If you use the money to pay off the mortgage, assuming a whooping mortgage rate of 5% then 30 years savings of the £10 will have saved you £15. Thus 10+15 gives £25
2. If you use the money to put into your pension, assuming you are a higher rate tax payer and see an increase of 7% growth each year (normal average growth for pension investment over the last 10 years), the £10 will grow to £37.

Just to add to your excellent reply. If you can pay your pension contribution via salary sacrifice then the tax/ni saving are even greater. 42% for high rate tax payer and 32% for basic rate tax payer.

With Brass the employer makes a contribution which adds to the AVC fund, as for being locked up, you can change your Brass contribution up or down in the future, it is hard to catch up later if you delay for too long, RPS considers 60 years of age to be normal retirement age, you can take your pension at 60 without a penalty or discount.

Sadly not all companies offer Brass contribution matching anymore.

Recommend you receive professional advice. Your Union may be able to help you over this matter.

https://moneyandpensionsservice.org.uk/

 

[John Bishop]

With Brass the employer makes a contribution which adds to the AVC fund, as for being locked up, you can change your Brass contribution up or down in the future, it is hard to catch up later if you delay for too long, RPS considers 60 years of age to be normal retirement age, you can take your pension at 60 without a penalty or discount.

No, not correct. RPS schemes these days are 62 as a NRA. If you want to take at 60, you will have a penalty.

Before putting anything extra into pensions, make sure you're paying off the maximum extra on your mortgage.

The difference it'll make for a minimal outlay is staggering. Especially if you're on a favourable rate now.

Nope, incorrect as other have said. Unless you are paying over 22 or 42% interest rate on a mortgage, then any mortgage overpayments won’t come close to the savings made into BRASS with the tax savings on your investment.

 

[whoosh]

Seek professional advice.

But:
The railway pension has a good "Reverse commutation" rate of giving up £12 of lump sum gives you £1 of yearly pension. (Other schemes cost £20 to do the same thing, so it's a good rate/deal!)
Any BRASS funds you have can give you back a lump sum, so paying into BRASS means you can convert a lot of your normal Railway Pension lump sum into a yearly pension at the favourable conversion rate, and still have a lump sum with the extra you've paid into BRASS.

You are right to investigate pension options and ask questions - too many people don't!

 

[Iamanoob]

Cheers for info, will get advice when I receive all relevant paperwork. One thing that confuses me though (amongst others) is the conversion, I get that it is 12:1 but say I have £12000 in Brass and convert that to an extra £1000 per year of pension, am I not taking an £11000 hit on my savings?

 

[greatkingrat]

Cheers for info, will get advice when I receive all relevant paperwork. One thing that confuses me though (amongst others) is the conversion, I get that it is 12:1 but say I have £12000 in Brass and convert that to an extra £1000 per year of pension, am I not taking an £11000 hit on my savings?

It depends how long you live so is always a bit of a gamble, but most people will live for more than 12 years after retiring and will end up in profit.

 

[aleph_0]

Cheers for info, will get advice when I receive all relevant paperwork. One thing that confuses me though (amongst others) is the conversion, I get that it is 12:1 but say I have £12000 in Brass and convert that to an extra £1000 per year of pension, am I not taking an £11000 hit on my savings?

There are two things happening, so just to be clear, what's being suggested, say you have:
£12,000 lump sum from the main RPS
£10,000 in BRASS

In the main RPS, you can convert the lump sum from a £12,000 lump sum, to an extra £1,000/year pension. It's a fun gamble on life expectancy, but to give context, if you went to the open market right now to buy an annuity with that £12k you would get <£500/year pension. The £12k would have been tax-free, but even so, it's a really good deal. You could do this conversion even if your BRASS pot was 0.

The £10k BRASS amount you can take as cash (tax-free), you can't convert that directly (as usual, there are exceptions in terms of legacy agreements, and other things - such as if the BRASS pot breaches the 25% HMRC cash-free rule, but they are unlikely to apply).

The strength of BRASS is that because BRASS is part of RPS and so RPS+BRASS is one pension, it allows the money to all be taken tax-free (whereas, with a defined contribution pension if you had £100k - then you could take £25k tax-free, and then the £75k would either be annuity/draw-down etc.).

So any BRASS payments you know are basically coming out as tax-free cash on retirement, which is a good deal, whereas if you pay into your old pension, only 25% of that can come out tax-free.

 

[Tractor2018]

my understanding is that BRASS is just the branding of the railway pension scheme's AVC offer, which is a defined contribution-type scheme - i.e. you pay in £10,000, you choose which funds/managed fund package its invested in, and then at retirement you can take out whatever that has grown/shrunk to as either drawdown, or an annuity, etc.

Yes, but potentially no. Nothings ever that simple on the railway

I guess it's DC in as much as you define your contributions. But when it comes time to draw your benefits, if your BRASS funds form a large enough part of your total railway pension then they'll be added to your DB pension.